Illusions: Both sides have a very powerful and widely influential constituency that still believes they can have it all. In Israel, parties such as Jewish Home (HaBayit HaYehudi), which is led by Naftali Bennett and is part of the coalition government, publicly call for the annexation of much of the West Bank because they believe the Jews have an inherent right to the whole "land of Israel."
On the Palestinians' side, Hamas (notwithstanding their occasional declaration that they will accept a two-state solution based on the 1967 borders) insists that all of mandated Palestine, including Israel, is Palestinian territory, and at best they would tolerate the Jews to live under Palestinian rule.
Both sides have been living with these illusions and are imbued with a zero-sum approach. Unfortunately, their leadership have done little but propagate these beliefs. Israel's illusions have served to create the logic for the continuing occupation, and Palestinian extremists cling to their illusions just as blindly as the Israelis, which leads to resistance to and fear of change. This has contributed to making the Israeli-Palestinian conflict both chronic and intractable.
To disabuse both sides of these illusions that either can have it all, Trump must make it abundantly clear to both sides that the US can help facilitate an agreement at a later date only when both sides accept these three unmitigated facts: a) neither can have it all; b) coexistence is not one of many options, but the only option; and c) the conflict will end only on the basis of a two-state solution.
Trump must understand that the success of future peace talks rest entirely on addressing the above three obstacles through a process of reconciliation, and that the best thing that the US can do at this juncture is initiate a reconciliatory process and play the role of a mediator while monitoring both sides to ensure that they live up to these requirements.
I personally do not believe that Netanyahu will allow the creation of a Palestinian state under his watch, nor would Abbas be able to make the necessary concessions and survive politically, nor would Trump's 'magical negotiating skills' produce any significant breakthrough.
That said, this process of reconciliation remains crucial under any circumstance to pave the way for a future new Israeli government and Palestinian Authority to pursue peace on a solid foundation.
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